April 27 (Reuters) - Australia's "Big Four" banks chose profits...

April 27 (Reuters) - Australia's "Big Four" banks chose profits instead of passing on three interest rate cuts to customers last year, the competition watchdog said, after they faced criticism for not doing so and the government ordered an investigation.

The banks benefited from lower funding costs in 2019, the Australian Competition and Consumer Commission (ACCC) said in an interim report released on Monday.

But despite an average decline in interest rates, the commission said the banks were not transparent about price, adding that "higher interest rates for existing loans continued to cost customers".

"The inquiry findings shed an important light on bank decision making and raise questions about whether the banks could, at the time, have passed on a higher proportion of those RBA cash rate cuts to their mortgage customers," ACCC Chair Rod Sims said in the report, referring to the Reserve Bank of Australia.

The four lenders - Commonwealth Bank of Australia (CBA) , Westpac Banking Corp (WBC) , National Australia Bank (NAB) and Australia and New Zealand Banking Group (ANZ) - dominate about 80% of Australia's A$1.7 trillion ($1.15 trillion) residential mortgage market.

None of the banks responded immediately to emailed requests for comment after business hours.

The banks at the time defied pressure from the government to pass on lower rates to their mortgage customers, pointing to the margin pressure they were facing due to the low-interest rate environment.

This forced the government in October to order the ACCC to investigate the prices charged for residential mortgages by all lenders and how they made pricing decisions, including passing on changes in the official cash rate made by the central bank.

While interest rates have fallen further this year as the central bank looks to weather the economic fallout of the coronavirus, banks are integral components to soften the blow and keep the economy churning.

"We recognise that much has changed in the economic and funding environment since last year. The COVID-19 pandemic has shifted priorities and the banks are playing an important role in supporting the economy," Sims said.